Price plays a very important role in the economic system of modern economy. The major functions of price include:

1. Distributive function: for whom to produce, where to produce. Goods and resources are limited, but needs and wants are unlimited; so price will determine affordability and those with the buying power will have the limited
2. Allocative function: what, when, for whom to produce.
3. Signalling function: Prices signal the demand and supply situations .Shortages are reflected in high prices, and surpluses are reflected in lower prices.
4. Equilibrating function: prices facilitate matching of demand and supply therefore clearing the market.
5. Rationing function: Again a question of limited resources vs. unlimited wants.
6. Transmission function: Prices transmit information to various actors in the market thus enabling them to make informed decision on what and when to buy and sell.
7. Provision of incentive: prices act as incentives/disincentives to consumers and producers.
8. Enhancing marketing efficiency and performance: correct price signals will oil the marketing machine. However wrong signals on price will hinder smooth functioning of the market thus resulting in poor performance.
9. Determining decision making with respect to the following aspects:

• Production system: what to produce, by whom, and where to produce.
• Industrial location
• Product market areas and market boundaries (ISOTIMS and the Law of market Areas).
• Arbitrage and patterns of trade (Spatial trade patterns)
• Temporal arbitrage (STORAGE) transportation and processing. However facilitating functions are composed of standardization, financing, risk bearing and market intelligence.